Housing Doom

[Congressman Alan] Grayson: “So who got the money?”
Bernanke: “Financial institutions in Europe and other countries.”
Grayson: “Which ones?”
Bernanke: “I don’t know.”
Grayson: “Half a trillion dollars and you don’t know who got the money?” - Wall St. Cheat Sheet¹

Twist was circulating the above around the Castle earlier today with the comment "… you could purchase a bunch of treasuries and agency debt with that," to which I’m going to add the thought — last week. Foreign central banks have been suddenly gorging on Treasury Debt, but an even bigger number is this week’s Puplava number, and it was so extreme it merited notice in Bloomberg.²

The Fed’s assets rose $51.9 billion, or 2.5 percent, to $2.14 trillion, the highest since May, in the week ended yesterday, the central bank said today in Washington. Mortgage- backed securities increased by $59.8 billion to $685.1 billion.

We’re certainly being kept busy here at Doom trying to follow the mind-bogglingly huge piles of money being shifted around in this gigantic shell game. And when I try to get my head around the idea of the Fed evolving⁷ into America’s premier social housing agency it’s definitely time to let the old Earl Grey steep a little longer.

This week’s Reuters report³ delivers yet another high hard one. The report was, as usual, based on the weekly update from the NY Fed’s H.4.1 table site.⁴ Here is Doom’s updated CSV version⁵ of the agencies and treasuries foreign central bank holdings data set.

Last week I asked, "Could this sputtering pattern [of modest treasuries buys] presage a top?" so this week … Kapow!! we get the 2nd highest weekly buy ever of the stuff.  Doomers who have good memories may remember that the week ending in October 1st last year, the week that still holds #1 honours, was hardly a normal time.⁶ … And if you look at #10 you’ll see that more than half of that splurge was given back the next week.

Agencies fell by $5.073 billion continuing a slowly accelerating trend of inexorable sell-off.

The net buy of US obligations was a very healthy $26.353 billion, but remember that the previous two weeks nearly canceled each other out.

Twist’s ratios graphs clank down at a steep angle.

Setser’s 52-week change graph diverges strongly on the anomolous treasuries figure and the modest buy in the agencies column from a year ago.

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Notes and References

[1]: "Exclusive Interview: Congressman Alan Grayson Talks Fed Transparency and Missing Money", by Damien Hoffman, Wall St. Cheat Sheet, September 14, 2009.

[2]: "Fed’s Assets Rise to Most Since May on Mortgage-Debt Purchases", by Scott Lanman, Bloomberg, September 17, 2009.

[3]: "Foreign central banks’ U.S. debt holdings rise – Fed", by Ellen Freilich, Reuters, September 17, 2009.

[4]: "H.4.1 Factors Affecting Reserve Balances", Federal Reserve Statistical Release (weekly), Federal Reserve Bank of New York.

[5]: The updated data set as a Comma Separated Value (CSV) file is here.

[6]: You might like to check out the new Doom transcript of an AEI seminar on the credit crunch they gave the next day.  Those bank analysts were pretty freaked out.

[7]: "VIEWPOINT: The Wrong Way to Think About the Fate of the GSEs", by Linda Lowell, HousingWire, September 17, 2009.

Consider too, that the Fed gobbled up its $866 billion or so in just 8 months, consuming more than half the new supply of GSE securities. When prepayments are taken into account (outstanding security balances shrink as new securities are made), at many points over the last year the Fed has inhaled over 100% of net supply. This is in effect a massive market technical that squeezed mortgage spreads to historical tights. At many points too tight for value oriented long term investors (institutional investors and the GSEs) to want to buy them.